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BDC Common Stocks Market Recap: Week Ended March 2, 2018

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BDC COMMON STOCKS

There was no relief through most of the week for BDC common stocks, even as fund after fund announced (pretty good) results.

If we look at the 5 Day Chart for BDCS, we see that the sector dropped (1.8%) till early Friday morning, before recovering by the close to a (1.0%) drop for the week to close at $19.31.

That wouldn’t be so bad for BDC investors if BDCS were not down already (7%) 2018 Year To Date 

Closer To The Bottom Than The Top

Since the March 2017 BDCS high, the sector is down (19%), just shy of a bear Market.

Most interesting of all is that BDCS is now trading at the level of late February 2016, two weeks after the market had dropped to a post Great Recession low on fears of…everything.

Putting where we stand further into context, the price of BDCS is now (31%) off the Best Of Times, back in November 2013, when the price peaked at $28.00.

Other Metrics

As has been the case for weeks, all the other metrics we look at remained pretty gloomy for BDC common stocks in the week.

12 BDC stocks were up on the week, but 33 were down. Over 4 weeks only 9 are up. Over 52 Weeks just 4.

The Biggest Winners for the week were TICC (5.8%), TCAP (4.9%) and SAR (3.6%).

The first two names were up because their actual results were less disastrous than expected. SAR raised its distribution.

All 3 are down in price over 52 Weeks, TCAP by a monstrous (40%).

Where’s The Love ?

6 BDCs were down by 3% or more.

What is intriguing – and disturbing by our lights – is that the market sold off popular names whose results had been released and whose distributions were undisturbed,

Think of GSBD, GAIN,HTGC and CGBD.

Don’t Go Into The Basement 

We counted a near-record 23 BDCs trading within 5% of their 52 Week Lows, and another 11 within 5-10%. That’s three quarters of our BDC Universe.

(We did drop coverage of Medallion Financial – or MFIN – this week, bringing our BDC Universe to a round 45 names).

Just 3 names are within 10% of their 52 Week Highs.

Bizarro World

Long time readers will know that this is a long way from the Way We Were.

We looked back at the Market Recap of a year ago.

BDCS was at $23.37, 21% higher.

Moreover, 35 of the 45 BDCs were trading within 10% of their 52 Week High and 2 were within 10% of their 52 Week Lows.

What we have now is a reverse image of 12 months ago.

Not So Bad

We are not done with BDC Earnings season, but we’ve gotten a good idea of what to expect.

Most BDC results have been pretty good, with earnings, yields and dividends holding firm, despite “spread compression”, wild competition and shifting market dynamics.

Helping BDCs out is higher LIBOR mitigating lower loan spreads; borrowing cheaper (sorry Unsecured Note Holders, your favorite issues have a target on their back) and a willingness by managers to waive some fees.

Most of all, credit problems are far from being endemic. A few BDCs have done some Bad, Bad Things but most have relatively clean sheets.

(We count 10 with Problems and 35 without. Even the 10 unforunte BDCs who’ve screwed up their credit underwriting are mostly on the road to cleaning up their Augean Stables).

Not hurting is that hot house environment for buy-outs and the equity stakes which BDCs hold. Even previously restructured investments – especially in energy – are coming to the rescue of book value and – to a lesser degree – earnings.

Outlook

However, Mr/Ms. Market does not care.

Sentiment shifted some months ago – as we reported here –  and has yet to shift back.

We won’t be surprising readers by saying that there usually has to be a final Paroxysm Of Panic before a bottom is found.

For all the Miserable Metrics quoted above,  we still have 8 BDCs trading at a premium to book (although most of whom are close to their 52 Week Lows !).

In the past (2009, 2011 and 2016) we’ve needed to have another 10-15% drop in a brief period to bring in the value buyers and to cause a re-think.

However every market train wreck is both the same and different from what came before so we won’t pretend to know what will happen next.

There’s no doubt in our minds, though, that the BDC Sector – along with all markets – are especially vulnerable to a Run For The Doors sort of event.

Thankfully BDCs might be loaded up with low spread, riskier loans than ever before but – barring a Recession – most have adequate enough fundamentals to weather passing storms.

In fact, some BDC managers are almost wishing for a period of market volatility to boost spreads and scare away newcomers.

We shall see if they get their wish.

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